G.R. No. 171428
November 11, 2013
ALEJANDRO V. TANKEH, Petitioner, vs. DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS, and ASSET PRIVATIZATION TRUST, Respondents. Facts: Sometime in 1980, Alejandro was approached by his brother, Ruperto (president of SSL) informing him that the latter was operating a new shipping line business and offered him 1000 shares worth P1M to be a director of the business. Alejandro accepted the offer based on the promised that he be part of the admin staff so that he can oversee the operation of the business plus his son, who is a practicing lawyer would be given a position in the company. A loan was applied from DBP for financing of an ocean-going vessel with the conditions that the first mortgage is obtained over the vessel, the future earnings of the mortgage including proceeds should be assigned to DBP and DBP is assigned to no less than 67% of the voting shares of the company. Alejandro signed the Assignment of Shares of Stock with Voting Rights and the promissory note making him liable jointly and severally for the amount of the loan. After the vessel is acquired, a deed of assignment was executed in favor of DBP. On 1983, upon realizing that he was only being made a tool to realize the purposes of Ruperto, Alejandro officially informed the company by means of letter that he has severed his connection with the company and asking the board to pass a resolution to released him from his liabilities with DBP and notify the latter about this. On 1986, the account of SSL in the DBP were transferred to Asset Privatization Trust by virtue of Presidential Proclamation No. 50. The asset including loan in favor of DBP were ordered to be transferred to the national government. Despite the assignment and cash equity contribution of SSL to cover part of the acquisition cost of the vessel and the like, the promissory note still subsisted. Hence, Alejandro is still bound as a debtor because of the promissory note. Alejandro’s contention: The promisorry note must be declared as null and void and he be absolved from any liability. Ruperto exercised deceit and fraud in causing him to bind himself jointly and severally to pay DBP the amount of the mortgage loan. All the money supposedly invested by him were put by Ruperto, hence he had never invested any money. He was invited to attend the board meeting only once and he was never compensated by SSL for being called director and stockholder. None of the promises of Ruperto was complied with. Issue: WON the fraud perpetrated by Ruperto is serious enough to warrant annulment of the contract? Ruling: No. Only incidental fraud exists in this case. Therefore it is not sufficient to warrant the annulment of the contracts petitioner entered into but respondent Ruperto is liable to pay him damages. The distinction between fraud as a ground for rendering a contract voidable or as basis for an award of damages is provided in Article 1344: In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. There are two types of fraud contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo causante or fraud serious enough to render a contract voidable. If there is fraud in the performance of the contract, then this fraud will give rise to damages. If the fraud did not compel the imputing party to give his or her consent, it may not serve as the basis to annul the contract, which exhibits dolo causante. However, the party alleging the existence of fraud may prove the existence of dolo incidente. This may make the party against whom fraud is alleged liable for damages. Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade which negates fraud. It reads: The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. Given the standing and stature of the petitioner, he was in a position to ascertain more information about the contract. The following facts show that petitioner was fully aware of the magnitude of his undertaking: First, petitioner was fully aware of the financial reverses that SSL had been undergoing, and he took great pains to release himself from the obligation. Second, his background as a doctor, as a bank organizer, and as a businessman with experience in the textile business and real estate should have apprised him of the irregularity in the contract that he would be undertaking. This meant that at the time petitioner gave his consent to become a part of the corporation, he had been fully aware of the circumstances and the risks of his participation. Intent is determined by the acts. Finally, the records showed that petitioner had been fully aware of the effect of his signing the promissory note. The bare assertion that he was not privy to the records cannot counteract the fact that petitioner himself had admitted that after he had severed ties with his brother, he had written a letter seeking to reach an amicable settlement with respondent Rupert. Petitioner’s actions defied his claim of a complete lack of awareness regarding the circumstances and the contract he had been entering. The required standard of proof – clear and convincing evidence – was not met. There was no dolo causante or fraud used to obtain the petitioner’s consent to enter into the contract. Petitioner had the opportunity to become aware of the facts that attended the signing of the promissory note. He even admitted that he has a lawyer-son who the petitioner had hoped would assist him in the administration of Sterling Shipping Lines, Inc. The totality of the facts on record belies petitioner’s claim that fraud was used to obtain his consent to the contract given his personal circumstances and the applicable law. However, in refusing to allow petitioner to participate in the management of the business, respondent Ruperto V. Tankeh was liable for the commission of incidental fraud. In Geraldez, this Court defined incidental fraud as "those which are not serious in character and without which the other party would still have entered into the contract. Although there was no fraud that had been undertaken to obtain petitioner’s consent, there was fraud in the performance of the contract.
